State Fiscal Actions in the '90s

NCSL News graphic

July 23, 2003

NCSL Analysis Reveals New Perspective on States' Fiscal Actions in the '90s

NCSL report says states enacted tax cuts, established record reserves while facing new demands from education, Medicaid and corrections

SAN FRANCISCO - States took advantage of remarkable national economic growth in the 1990s to increase funding to education, cut taxes, build rainy day funds and meet ever-growing Medicaid costs, while keeping their spending level as a proportion of the national economy, a new report shows.

The National Conference of State Legislatures has released an analysis of state spending in the 1990s that reveals that state and local government spending, excluding federal grants passed on to states for mandated programs and services, remained near a constant 10 percent of the gross domestic product during the decade.

"States benefited from a impressive growth in the U.S. gross domestic product in the 1990s," said NCSL Director of Economic, Fiscal and Human Resources Ron Snell. "As a result, state governments were able simultaneously to cut taxes, rebuild the reserves that had been depleted by the recession of 1990, and expand spending on priority programs."

States were able to take significant financial actions during the decade, the report says, including:

Enacting state tax cuts totaling a minimum of $35.7 billion from 1995 to 2001, reversing tax increases enacted earlier in the decade.
Establishing record reserve funds. By the end of fiscal year 1992, state reserves fell below 1 percent of general fund expenditures. At the end of fiscal year 2000, states had rebuilt reserves to 10.4 percent of general fund expenditures, reaching $47 billion.
Increasing state aid to K-12 education 90 percent over the decade, responding to enrollment increases, higher costs and legal challenges that forced increases in state governments' share of education spending. Costs for special education services increased dramatically, with a 32 percent increase in the number of special education pupils.

Meeting the demands of growing Medicaid costs. Medicaid spending represented the single largest increase in state expenditures in the 1990s, growing nearly 150 percent. States took advantage of matching federal funds to extend Medicaid programs to cover more uninsured, increasing Medicaid enrollees by 12.8 million, or 51 percent. At the same time, health care costs skyrocketed. In prescription drugs alone, state spending increased from $5.4 billion in fiscal year 1991 to $24.7 billion 10 years later, an increase of 457 percent.
Responding to public demands for stiff sentencing policies. State prisons held 708,000 inmates at the end of 1990. By the end of 2000, the population of state prisons swelled by 537,000 inmates, an increase of 76 percent. Between 1992 and 2002, states added 742,000 prison beds.

The report shows state spending increased from $628.6 million in 1991 to nearly $1.2 trillion in 2001, an 88 percent increase Inflation and population growth accounted for approximately half the average annual growth in state spending during the decade, analysts said. The average growth rate for the period was nearly 6.6 percent, with ranges from 2.74 percent in 1996 to a high of 11.66 percent in 1992, a year where recession-driven demands for safety-net programs and double-digit increases in Medicaid costs squeezed state budgets.

Copies of the full report are available on line, or by contacting the NCSL Public Affairs staff at press-room@ncsl.org, or 303-856-1518.

NCSL is a bipartisan organization serving the legislators and legislative staff of the states, commonwealths and territories. Its mission is to improve the quality and effectiveness of state legislatures, foster interstate communication and provide the states a strong, cohesive voice in the federal system.

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